Journal of Transportation Management Volume 14 | Issue 1 Article 4 4-1-2003 Surface freight transportation in Mexico post NAFTA Richard L. Clarke Clemson University Follow this and additional works at: https://digitalcommons.wayne.edu/jotm Part of the Operations and Supply Chain Management Commons, and the Transportation Commons Recommended Citation Clarke, Richard L. (2003). Surface freight transportation in Mexico post NAFTA. Journal of Transportation Management, 14(1), 14-21. doi: 10.22237/jotm/1049155380 This Article is brought to you for free and open access by the Open Access Journals at DigitalCommons@WayneState. It has been accepted for inclusion in Journal of Transportation Management by an authorized editor of DigitalCommons@WayneState. SURFACE FREIGHT TRANSPORTATION IN MEXICO POST NAFTA Richard L. Clarke Clemson University One of the significant expressed objectives of NAFTA was the improvement of cross-border transportation to enable a more efficient and cost effective flow of goods among Mexico, Canada and the United States. This article examines the changes that have taken place in surface freight transportation between Mexico and the U.S. since NAFTA was signed in 1993. INTRODUCTION been little improvement in the cross-border movement of goods between Mexico and the One of the major expressed objectives of the 1993 United States. North American Free Trade Agreement (NAFTA) was to facilitate the cross-border movement of Commercial truck movements into each goods and services between the territories of country’s interior remain a time-consuming, Canada, Mexico and the United States. Another inconvenient process, largely unchanged since objective was to increase trade among the three 1990. Neither country yet allows foreign countries by removing tariffs, quotas and other trucking beyond a twenty-mile commercial zone. trade restrictions. A review of the increases in As a result, the promised benefits of improved trade volume since 1993 provides ample evidence transportation, such as faster transit times, that the later objective has been achieved. For reduced pipeline inventories and better example, the number of commercial trucks reliability of shipment delivery, have not yet carrying U.S. exports to Mexico increased over been realized. While cross border movement of 407% from 1990 to 2000 while the number of goods remains as cumbersome, inefficient and trucks transporting Mexican exports to the U.S. unpredictable as it was prior to NAFTA, there increased 328% over the same period. There have been several significant improvements in were a reported 2.26 million commercial truck Mexico’s transportation infrastructure since crossings into Mexico from Texas in 2000 and NAFTA’s passage. The purpose of this article is another 2.38 million truck crossings from Mexico two fold: to examine the progress Mexico has into Texas (TAMIU, 2002). In the same report, made in modernizing its rail and highway the Texas Center for Border Economic and transportation modes and to outline the reasons Enterprise Development, reported the number of why there has not been much improvement in freight railcars transporting goods into Mexico the cross-border flow of goods between the U.S. more than doubled from 1993 to 2000 from and Mexico. This article also reviews major 147,216 to 298,919 (TAMIU, 2002). However, in economic policy changes in Mexico and makes the ten years since NAFTA’s passage there has recommendations on how Mexico and the United 14 Journal of Transportation Management States might achieve a better flow of goods four years the three TFM partners have been the across their shared border. U.S.-based Kansas City Southern Industries Corporation (37%), its Mexican affiliate, RAIL IMPROVEMENTS IN MEXICO TMM/Grupo Service (38.5%) and the Mexican government (24.5%). By law, Mexico’s four Privatization privatized rail systems must be at least 51% owned by Mexican-based investors, which has Ferrocarriles Nacionales de Mexico (FNM), required U.S. investors to find Mexican partners. Mexico’s national railroad, was established in The privatization of all four parts of the FNM 1873. It was owned and operated by the central was completed last year under this ownership government of Mexico from 1937-1994. Over the rule. course of this 57-year period, Mexico’s rail system suffered from neglect and severe lack of The second rail freight system to become capital funding (Barrera, 1999). As a result, privatized was the Ferrocarril line, a 4,052-mile Mexico’s national railroad became slow, Pacific-North line and the 938 mile Ojenaga- unreliable and highly inefficient. The lack of Topolobampo railroad. The new owner is Grupo required track replacement and track Ferroviacio Mexicano Mexican Railways, a newly maintenance caused frequent derailments. By formed alliance of two large Mexican companies 1980, 75 per cent of Mexico’s existing track dated and the U.S.-based Union Pacific Corporation. back to pre-revolution days before 1910 (Barrera, The Ferrocarril line connects Calexico, California 1999). Train robberies by organized gangs of and El Paso, Eagle Pass and Brownsville, Texas armed bandits were also commonplace during (House, 1999). this period. Approximately one in every five trains was boarded and robbed as recently as the A third section, the 1,000-mile Southeast section, late 1980’s (Kaufman, 2001). is now owned by a group of Mexican investors. The Southeast Railroad connects Mexico City Beginning in 1994, the Mexican government with several important ports along the Gulf began to address the need for significant coast including Veracruz and Coatzacoalcos. improvement in its freight rail system by This line has the lowest revenues currently but deciding to privatize the entire 16,500-mile the highest growth potential because it links network. In the same year, the first of FNM’s several of Mexico’s busiest seaports. Railcars are three major railway regions was sold to the currently being ferried between Coatzacoalcos Transportation Ferroviaria Mexicana (TFM) and Mobile, Alabama by Gulflink Marine. There consortium for $1.4 billion. TFM’s winning bid is also reported interest in the Southeast line by gave TFM partners the right to operate the the Canadian National (CN) Railroad. With its 2,661-mile Northeast system for 50 years with recent acquisition of the Illinois Central an option for an additional 50 years (Vantuono, Railroad, CN currently provides cross-border 1999). TFM’s line is the most important of the service between Canada and the U.S. and has major FNM (Ferrocarril del Noreste) rail regions routes to the Mexican border (Kaufman, 2001). because it provides the primary rail route in Northern Mexico and links the industrial areas Improvements Since 1994 of Mexico City and Monterey with the United States at Laredo, Texas. Approximately 60% of With privatization has come a much needed all the trade between Mexico and the United infusion of capital to replace obsolete rolling States crosses the border at Laredo/Nuevo stock, buy new locomotives, repair and upgrade Laredo (TAMIU, 2002). Although the Northeast track and install computerized control systems. system controls less than 19% of the total Most of the improvements have been to the Mexican trackage it moves 40% of Mexico’s Northeast section owned by TFM and domestic freight (Vantuono, 1999). For the past underwritten with capital provided by Kansas Spring 2003 15 City Southern Industries. TFM spent $90 Products moving by train from the U.S. to million for infrastructure improvements within Mexico’s interior can now be moved on a single a year of winning the operating bid and another through bill of lading. Formerly, rail shipments $600 million by the end of 2001 (KCSI, 2002). from the U.S. into Mexico had to be rebilled at The money has gone to purchase over 2,800 new the border, which was often a very time- pieces of rolling stock, and 150 new locomotives. consuming process. Railcars must still be TFM has also negotiated a new labor agreement, switched to Mexican locomotives at the border rebuilt the main line between Mexico City and but since the operations are now frequently Laredo, built a new service center and a new under the control of the same company, the computerized railroad operation center (KCSI, switching is much more efficient than it was 2002). The investment appears to be paying off, before rail privatization (House, 1999). at least as of year ending in December 1999 versus the previous year. The 1999 revenue Remaining Problems in from railroad operations was $524.5 million, an Cross Border Rail Freight increase of 22 percent over 1998 while the operation ratio improved from 85.5% to 76.6% Incompatibilities in the customs clearance (KCSI, 2002). procedures between the United States and Mexico remain, even though the new railroads Mexican Railways has also invested heavily in have built customs processing yards to facilitate infrastructure movements to improve their clearance. Both the TFM Railroad and Mexican 4,052-mile rail network. By the end of 1999, Railways have built processing yards several they had spent nearly $400 million to rebuild miles from the main border crossing at Nuevo track, build new sidings and modernize their Laredo, but the railroads are only capable of fleet of railcars (Kaufman, 2001). Both new improving processes under their control. The major system owners have also beefed up governments of the United States and Mexico security. Mexican railways has hired 1600 have done little to reduce the paperwork and security officers, put up new fences and lighting bureaucracy inherent in the customs clearing and covered all railcar hatch covers with process (Ross, 2001). One improvement would be fiberglass. TFM has hired over 1000 security to make the shipper of record the company with personnel, reducing the number of train whom customs officials deal, not the railroad or robberies (House, 1999). As a result, train theft the freight-forwarder.